Interested in adding cryptocurrency to your KiwiSaver LEARN MORE

Frequently asked questions

Inflation is the increase in costs of goods over time.

The value of goods will generally rise over time. When I was a child, a can of coke used to cost $1 in my school vending machine, that same can of coke now costs $2 - this is the impact of inflation. 

Economists expect long term inflation to grow at 2% per annum and the economy is structured for this to happen. This means that my can of Coke should grow in price by 2% each and every year. In 20 years time, the can of coke will cost you $3 rather than $2. All goods will suffer similar levels of inflation. When preparing for the future, you need to take into account this inflation, you will still want to buy the same goods and services, but they will be more expensive. 

When we present your KiwiSaver outcomes to you, we present those numbers "adjusted for inflation" - this is to show you the true spending power of your future KiwiSaver balance.

Volatility represents the ups and downs of an investment over time.

Volatility describes and measures the ups and downs in the value of the financial investment, i.e. this risk of holding that investment and losing money if it needs to be sold. Investment markets are cyclical, so asset values will rise and fall over time. A higher volatility means a share or a portfolio will have potentially frequent and large changes in value over time. A lower volatility means potentially less frequent or smaller ups and downs. 

Volatility is reduced by diversification. In a portfolio of diverse investments, some will go down while others go up so that the portfolio's volatility is lower.

Volatility can be quantified as a number. This is very useful for investors to compare the riskiness of different investments and measure the degree to which they may be exposed to a loss. Volatility is calculated as the standard deviation of returns over time. 

See our blog Understanding risk for more details.

Growth assets provide capital growth and income assets provide a stable income

Growth assets are assets which generate a return both from capital growth and from the distribution of profits through dividends. Typical growth assets are equities (i.e. shares), infrastructure and property. Growth assets all carry the risk that the investor will lose money or not earn the expected return.

Income assets are generally debt instruments such as cash, term deposits and bonds.  These pay interest and the investor gets his investment back at the end of the agreed term. Income assets typically are less risky than growth assets because there is a high expectation that the investor will be able to get his capital back. Because they are less risky, expected returns on income assets are lower than on growth assets.  

Income assets are not always safe, as many NZ investors discovered at the time of the collapse of the finance companies between 2006 and 2012. While NZ Government bonds are extremely safe but pay low-interest rates, bonds issued by heavily indebted companies pay a higher interest rate but have a far larger risk of default. 

kōura’s Fixed Income Fund follows strict guidelines aimed at minimising this default risk by investing exclusively in Investment Grade debt, i.e. NZ Government, municipalities and high-quality companies. It also limits its exposure to any single debtor.


A market index is a hypothetical portfolio of securities which represent a financial market.

A market index is a hypothetical portfolio of investments (such as bonds and shares) which represents a financial market. There are thousands of indices around the world which track all sorts of markets.  The index value is calculated as the weighted sum of the prices of the underlying holdings.  The method of weighting varies from one index to the other but generally, they are weighted by their market value.

Investors follow market indexes to gauge market returns and compare how their portfolio has performed in relation to the market. 

The most widely followed index for the NZ share market is the NZX 50 Gross Index.  It is a hypothetical portfolio of the 50 largest companies weighed by their free-float market value.  By free float, we mean that the index only takes into account the number of shares which are available for trading. Because dividends are such a large part of share returns in NZ, the index also takes dividends into account.

For US shares, the main index is the S&P 500, an index of the largest 500 US companies. However, dividends are not taken into account. This means that an investor who is looking to calculate the overall return needs to add dividends to the performance of the S&P 500.

Indices are used for several purposes:

  • As a benchmark for investors and fund managers to compare their performance with the market generally. You will see that all KiwiSaver providers compare their performance to these benchmarks.
  • As a portfolio for passive investment managers to replicate. These managers will have portfolios which track the market closely and will charge very low fees because they don’t have to pay for expensive fund managers.

Kōura has invested your money in passive investment funds which track specific equity indices which take ESG factors into consideration. These indices are developed and maintained by MSCI, the largest index provider in the world.

For our NZ Equities Fund, Kōura has elected to track the Morningstar NZ Equity Index which tracks the top 40 NZ Equities. We have however capped the weights of any individual company to 7% in order to reduce the exposure of the portfolio to any individual share.

An investment horizon is the length of time before you need to draw on your savings.

Your investment horizon is a key factor in determining how to invest your money. For example:

  • If you need your savings in 6 months to put a deposit on a house, you are better advised to place the money on a time deposit rather than buying risky shares whose value could fall over the next 6 months.
  • However, if you’re putting money away in a KiwiSaver for 25 years, buying risky shares makes more sense than time deposits because they are much more likely to outpace inflation and provide a better retirement outcome.
  • In fact, your KiwiSaver investment horizon extends well beyond when you turn 65 because you are likely to be drawing on your savings over your retirement which maybe another 30 years.

Kōura will recommend to you a portfolio which is appropriate to your investment horizon.

  • A longer investment horizon means you can afford to take more risk in order to earn higher returns. Because markets are cyclical, market downturns are inevitable, but your investments will have time to recover. Our advice will be to have a higher proportion of growth assets.
  • A shorter investment horizon means that you will need to have a lower risk portfolio. If there is a significant market downturn, your portfolio may not have recovered by the time you need the money. Our advice will be to have a higher proportion of safer income assets.

Kōura believes that most KiwiSaver investors, even the older ones, have a long-term horizon because they should not be cashing out at age 65 and putting their money on time deposits. They should stay invested and draw on their funds over time, possibly another 30 years. This means they can still benefit from a significant proportion of growth assets.

They say you shouldn’t put all your eggs in one basket. It is the same in investing and it is called diversification. 

Portfolio diversification will lower the risk of your KiwiSaver because not all asset categories (e.g. equities and bonds), industries, or shares move together. This decreases the volatility of the portfolio because different assets will be rising and falling at different times, smoothing out the returns of the portfolio as a whole. It reduces the risk that one investment doing badly, e.g. a company going bankrupt, will materially affect the overall performance of your KiwiSaver.

Diversification also improves the return relative to the risk of the portfolio. If you can lower your risk without sacrificing too much in returns, it is a good deal.

At Kōura, we diversify your KiwiSaver investments in several ways: by having portfolios with different asset classes (i.e. equities and bonds) and diversifying the investments within these asset classes:

Diversification within asset classes:

  • For your overseas equity investments, we use index funds which hold over 3,000 companies in 40 countries.  This means we are not materially exposed to the economy of one single country or to any specific company.   
  • For your NZ equity portfolio, we invest in the 40 largest NZ companies, but we cap any single company to 7% of the portfolio to reduce the risk of any single company.
  • Your fixed-income assets are invested in a range of bond issuers ranging from the New Zealand Government to high-quality NZ companies and banks.

Diversification between asset classes:

  • Mixing equities and bonds in a portfolio reduces risk by a greater amount than the weighted sum of their individual risk or volatility because the price of equities and bonds are not correlated, i.e. they don't move together at all.  In fact, they have been historically inversely correlated, i.e. one went up while the other went down, although this is less the case now. 
  • At koura, we recommend that you have a lot of equities when you are young because higher returns with more risk is a better tradeoff if you are far away from needing the money. When you get older, reducing risk become more important and we adjust the portfolios to take advantage of the lower risk associated with diversification.

Passive investing is investing for the long term when you follow a set of rules rather than picking individual investments

Passive investing is a strategy to maximize returns by minimizing buying and selling. Its goal is to build wealth gradually with the assumption that financial markets have positive returns over time. Index investing in one common passive investing strategy whereby you buy a representative benchmark, such as the S&P 500 index for US equities, and hold it over a long time horizon.

Passive management is often contrasted with active management where managers buy shares they believe to be undervalued and sell shares they believe to be overvalued. 

Passive managers generally believe it is difficult to out-think the market over time.  Active managers who pick shares may be successful at times but most of them are unlikely to do better than the market over long periods of time. Passive investing attempts to replicate market performance by constructing well-diversified portfolios of single stocks, which if done individually, would require extensive research. The introduction of index funds in the 1970s and ETFs in the 1990s made achieving returns in line with the market much easier and cheaper.  

In practice, most very large pension funds (such as the NZ Super Fund) now use a combination of both approaches: a core of passive funds to provide long-term sustainable growth and smaller “satellites” of actively managed funds aimed at adding some value in specialised areas.

Passive Investing Benefits and Drawbacks

  • Diversification - Benefit: Maintaining a well-diversified portfolio is important to successful investing, and passive investing via indexing is an excellent way to achieve diversification. Index funds spread risk broadly in holding all, or a representative sample of the securities in their target benchmarks.
  • Low fees - Benefit: Index funds track a target benchmark or index rather than seeking winners, so they avoid constantly buying and selling securities. As a result, they have lower fees and operating expenses than actively managed funds. Lower fees make a huge difference over time. For example, a fee difference of 0.5% per year adds up to over 10% of the balance over 20 years. 
  • Exposure to market risk - Drawback: Passive investing is subject to total market risk. Index funds track the entire market, so when the overall stock market or bond prices fall, so do index funds. They are not flexible because index fund managers usually are prohibited from using defensive measures such as reducing a position in shares and increasing cash levels, even if they think the market will fall.  
  • Limited performance upside - Drawback: Passive funds will pretty much never beat the market, even during times of turmoil, as their core holdings are locked in to track the market. 

Active Investing Benefits and Drawbacks

  • Flexibility - Benefit: Active managers aren't required to follow a specific index. They can buy those "diamond in the rough" stocks they believe they've found.  They can move into cash if they believe the market will fall.
    NZ active managers advance the argument that the NZ equity market is not as efficient as other markets because of its small size.  They claim that it is still possible to outperform the market index by selective share picking.  While this has been true in the past, it is no longer the case now.
  • Hedging - Benefit: Active managers can also hedge their bets using various techniques such as short sales or put options, and they're able to sell specific stocks or sectors when the risks become too big. Passive managers are stuck with the stocks that the index they track holds, regardless of how they are doing.
  • Higher costs - Drawback: Fees are higher because all that active buying and selling triggers transaction costs, not to mention that you're paying the salaries of the analyst team researching equity picks. All those fees over decades of investing can kill returns.
  • Active risk – Benefit & Drawback: Active managers are free to buy any investment they think would bring high returns, which is great when the analysts are right but terrible when they're wrong. To beat the index requires that you find winners year after year and that is only achieved by very few active funds.
  • Poor track record - Drawback: The data show over medium to long time frames, only a small handful of actively managed funds beat their benchmark index after fees and taxes.

What does Kōura do?

Kōura believes index investing will provide a better return over the very long horizon for a typical KiwiSaver investor. Kōura mitigates the market risk by recommending a mix between riskier growth assets and safer income assets which are appropriate for the investor’s personal situation.

To find out more about passive investing, please see our blog post here.

The value of your KiwiSaver portfolio will fall, though the key is to not worry about this and wait for the markets to recover (which they inevitably will).

Markets are cyclical in nature so that there will always be ups and downs in the value of your portfolio. 

As long as you understand that you are investing for the long term, the cyclical nature of financial markets should not worry you unduly. There will be periods when the value of your KiwiSaver balance will fall, potentially by a significant amount. 

Historically, market downturns have lasted 5-7 years (between the time when assets started falling to when they recovered in value). The value of assets has always recovered and continued to grow.

The worst thing that you can do in a market downturn is to change your investment strategy, e.g. to sell your shares (growth assets) and buy bonds or cash (income assets). By doing so, you are likely to crystallise a loss you may never recoup if markets do recover later, as they generally will. 

For more details check out our blog “Understanding Risk” here.

You would think that a bond is a pretty safe investment – the issuer pays you interest over time and the principal back at maturity. Relatively few bonds actually default and you don't get your money back.

Yet, the value of a bond can go up and down for two reasons:

  • Changes in market interest rates

If interest rates go up to, say, 5% when your bond is only paying 4% interest, the value of your bond will fall because investors who for $100 can buy a bond that pays 5% interest will pay less for your bond which only pays 4%.  The price will be the amount which gives them a 5% return on buying you and it will be less than $100.

The opposite applies when interest rates fall. Your bond will be more valuable in comparison to prevailing rates and its value will rise.

  • Changes in the issuer’s creditworthiness

Bonds are also priced in relation to their likelihood of default. The NZ Government can borrow at low-interest rates because it cannot default whereas companies with lots of debt borrow at far higher rates because there is a chance that they may be able to repay their debts at maturity.  A borrower whose financial profile worsens will have to pay higher interest rates to borrow more and this will depress the prices of its existing debt. Conversely, a borrower whose profile improves will see its bond prices go up. 

An investor’s risk appetite is his or her willingness to take on risk – but it’s really important to understand exactly what risk means in the context of your KiwiSaver. In a diversified and well-balanced long-term KiwiSaver fund, risk refers to your willingness to withstand volatility (the ups and downs of markets), rather than your willingness to lose all of your investments. 

So - if you need your money soon, then risk really means risk because you may be forced in cashing out at the wrong time. But if you are investing for the longer term, your risk appetite reflects how comfortable or not you are with market swings.

We discuss this in considerably more detail in our blog here.

Your KiwiSaver is invested in financial markets which are cyclical, so a market downturn will happen every now and then. Unfortunately, there’s very little that you can do about this – you’re best to wait out the cycle and for the recovery which will happen at some point in the future.

We understand this can be stressful. But the worst thing you can do is change your investment strategy during a market downturn, as this will lock in the losses.